The Commodities Futures Trading Commission (CFTC) has busted a worldwide web of companies in an off-exchange binary options scheme.
According to its recent press release, the CFTC has charged California resident Jason B. Scharf, his worldwide web of companies, and Florida-based affiliate marketers Michael Shah and Zilmil, Inc. with a $16 million binary options fraud scheme.
Binary options can only be traded legally in the US on four CFTC-approved exchanges: the North American Derivatives Exchange (NADEX), the CME group (which has a weather related binary option), the Chicago Board of Options Exchange (CBOE) and the Cantor Exchange. All other binary options trades in the US are euphemistically referred to as “off-exchange”, or in plain language, illegal.
In off-exchange binary options trades, the broker – in this case Scharf and his web – becomes the counterparty, taking the other side of the trader; this means Scharf can only win by having his clients lose.
Scharf created a maze of companies that included CIT Investments LLC, a Nevada limited liability corporation; Brevspand EOOD, a Bulgarian business entity; CIT Investments Ltd., a Marshall Islands business entity; CIT Investments Ltd., an Anguillan business entity; and A & J Media Partners, Inc., a California corporation.
His alleged co-conspirator, Michael Shah, and his company Zilmil, Inc., were both from Jacksonville, Florida.
Binary options are transactions that allow customers to make predictive trades as to whether the price of a certain commodity will rise or fall by a certain date and time.
Scharf began soliciting funds on his website, Citrades.com, in June 2013. The site advertised itself as “the most profitable click you will ever make” and “the leading platform” for trading binary options.
The website also claimed that it had been set up by “a group of highly accredited Wall Street brokers who wanted to bring everyone in the world an easy way to invest with an educational and no stress platform.”
“The Citrades website was started by Jason Scharf, who is not now, and has never been, a highly accredited Wall Street broker,” the CFTC complaint stated sharply.
The site itself also claimed that its` binary options strategy offered “safe & secure investments,” and that binary options were the fastest and most efficient way to convert your financial decisions into substantial profits.
The website even created fake testimonials with one purported client stating: “I never knew how easy it was to pull 85% returns from simple 60 second trades.”
According to the CFTC complaint, Autotradebrokers.com, another website run by Scharf, claimed to provide an auto trading system.
The CFTC complaint stated that this was a multi-layered fraud. No trading system existed; funds deposited through Autotradebrokers.com were commingled with CIT funds without disclosing the relationship, and claiming to be independent.
When this reporter visited the Autotradebrokers website, the main page said it was currently in “maintenance mode.”
Citrades.com, which was registered in Anguilla, a British territory in the Caribbean, ceased to exist in late 2016.
“The Complaint alleges that since at least January 2014 and continuing to the present, Shah and Zilmil have attracted potential customers through fraudulent ad campaigns to purchase binary options trading systems, and steer interested customers to binary options websites like those operated by Scharf. According to the Complaint, Scharf and his companies then fraudulently solicit customers to open binary options accounts with false claims of outsized profits and ‘guaranteed returns’ trading binary options, bolstered by fake testimonials of purportedly successful customers.” The CFTC stated. “The Complaint further alleges that once customers fund binary options accounts, they do not get their money back. Instead, the Complaint alleges that the funds are routed through numerous foreign corporations and overseas accounts before being spent on business and personal expenses, and compensating Shah and Zilmil.”
“Defendants Brevspand, CIT Investments, CIT Anguilla, and A&J Media (collectively, ‘Citrades Entities’) are part of a single common enterprise, and transact their business through a maze of related companies. The Citrades Entities have common ownership and management, commingle funds, utilize common resources, have a unified marketing strategy, participate in a shared business scheme, and have a common source of revenue.” The CFTC complaint stated of the maze of companies, “Defendant Scharf controls and supervises the day-to-day operations of the Citrades Entities.”